Household Inequality and the Consumption Response to Aggregate Real Shocks

Amromin, Gene; De Nardi, Mariacristina; Schulze, Karl

doi:10.21033/ep-2018-1

Journal Article

Household Inequality and the Consumption Response to Aggregate Real Shocks

Abstract: The drop in output and consumption that occurred during the Great Recession has been large and prolonged. Figure 1 displays per capita U.S. real gross domestic product (GDP) and personal consumption expenditures (PCE) between 1985 and 2016 and highlights the large drop in both consumption and output that occurred starting in 2007 and its parallel shift compared with the previous trend. In this article, we ask why consumption has dropped so much and has been recovering so slowly. We also ask to what extent household inequality before and after the Great Recession interacted with the recession itself to generate such a large and persistent drop in consumption.

Keywords: Household; consumption; recession; aggregate shocks;

https://doi.org/10.21033/ep-2018-1